12th Feb 2018

IND AS 102 – SHARE BASED PAYMENT

What is Share based Payment ( SBP)
In simple words – payment based on shares or shares
options.

SBP covers not just shares or shares options to Employees

, i.e., shares based transactions with employees , but also
SBP transactions with suppliers of goods or service, other
than employees Viz., vendors

 It requires an entity to reflect in its profit or loss

and financial position the effects of share-based
payment transactions, including expenses
associated with transactions in which share 1

options are granted to employees.

WHAT IS SHARE-BASED PAYMENT ARRANGEMENTS ?

An agreement between the entity (or another group

entity or any shareholder of any group entity) and
another party (including an employee) that entitles
the other party to receive :

(a) equity instruments (including shares or share

options) of the entity or another group entity,
provided the specified vesting conditions, if any, are
met.

(b) cash or other assets of the entity for amounts that

are based on the price (or value) of equity
instruments (including shares or share options) of 2
the entity or another group entity, or

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THREE TYPES OF SHARE BASED PAYMENT

Share-based payments
–(SBP)

Equity- Share-based
settled Cash-settled payments
share-based
share-based payments with cash
payments alternatives

Entity receives Entity receives Either entity or the

goods/services as goods/services by counterparty has a
consideration for incurring a liability to choice to settle in equity
instruments or in cash
equity instruments. transfer cash or other
or other assets.
assets to the supplier for
amounts that are based on
Equity
the price (or value) of the
entity’s shares. 3

Equity or
Liability
Liability

DEFINITIONS
• Grant date is the date at which the entity and the supplier
agree to the SBP arrangement and both parties have a shared
understanding of the terms and conditions of the
arrangement

• Vesting period is the period during which all the

specified vesting conditions are to be satisfied

• Vesting conditions determine whether the entity receives

the services that entitle the supplier to receive the SBP – they
are service or performance (including market) conditions

• Non-vesting conditions need to be satisfied for the

supplier to become entitled to the SBP 4

• Vest means to be come entitled to.

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DEFINITIONS
Fair Value * The amount for which an asset could be
exchanged, a liability settled, or an equity instrument
granted could be exchanged, between knowledgeable,
willing parties in an arm’s length transaction.

Intrinsic value The difference between the fair value of

the shares to which the counterparty has the (conditional
or unconditional) right to subscribe or which it has the
right to receive, and the price (if any) the counterparty is
(or will be) required to pay for those shares. For example,
a share option with an exercise price of Rs. 15, on a share
with a fair value of Rs. 20, has an intrinsic value of Rs. 5.

* This Standard uses the term ‘fair value’ in a way that differs in some 5
respects from the definition of fair value in Ind AS 113, Fair Value
Measurement. Therefore, when applying Ind AS 102 an entity measures fair
value in accordance with this Standard, not Ind AS 113.

VESTING CONDITION

Does the Condition determine whether the

entity receives the services that entitles the
counterparty to the share-based payments.

If No – Non-vesting Contiotion

If Yes – Vesting Condition

Service Condition
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Performance Condition

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DEFINITIONS

Equity instrument A contract that evidences a residual

interest in the assets of an entity after deducting all of
its liabilities.

Equity instrument granted The right (conditional or

unconditional) to an equity instrument of the entity
conferred by the entity on another party, under a share-
based payment arrangement.

MEASUREMENT DATE

The date at which the fair value of the equity instruments

granted is measured for the purposes of this Ind AS

For transactions with

For transactions with parties
employees and others
providing similar services other than employees

Measurement Date Measurement Date is the date on

Is the grant Date with which the goods or services are
reference to FV of equity received or acquired, with reference
instrument – indirectly to FV of goods or services - directly

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SHARE-BASED PAYMENT TRANSACTIONS

INCLUDE:

 Grants to employees (and others providing

similar services, e.g. non-executive directors)
 Grants to non-employees, e.g. consultants,
suppliers
 Employee share purchase plans
 Certain share-based payments settled by an
entity in, or an external shareholder of, the
same group

IND AS 102 - SCOPED OUT

 Equity instruments issued as consideration in business

combination (Ind AS 103)

 Commodity contracts that can be settled by exchanging

financial instruments and that are not for the purpose of
entity’s expected purchase, sale or usage (Ind AS 32/Ind AS
109)

 A transaction with an employee (or other party) in his/her

capacity as a holder of equity instruments of the entity is
not a share-based payment transaction.eg. Bonus - Rights
shares.
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TIMELINE OF A SHARE OPTION AWARD

Vesting period - the period
during which all the specified
vesting conditions are to be
Vesting period satisfied

Year 1 Year 2 Year 3

Time
Grant Vesting Exercise
date date date

Grant date - the date at

Vesting date – the date Exercise date is the date
which the entity and
when the vesting conditions when awards (e.g. options)
the counter party have a
for entitlement are satisfied
shared understanding of are exercised. 11
the terms and conditions
of the arrangement

GENERAL RECOGNITION PRINCIPLES

 Debit
 Recognise goods / services received when goods are
obtained or services are received
 When the goods / services do not qualify for
recognition as assets, an expense is recognised

 Credit
 For equity-settled share-based payment transactions a
corresponding increase in equity is recognised; and
 For cash-settled share-based payment transactions a
corresponding liability is recognised
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GENERAL MEASUREMENT PRINCIPLES

General measurement principles

Equity-settled Cash-settled
share-based share-based
payments payments

Non-employees Employees

Goods/services are Goods/services are

Goods/services are Goods/services are
measured measured at the
measured directly, measured at the
indirectly, by intrinsic value of
based on fair value grant date fair value
reference to fair the equity
of goods/services of the liability.
value of equity instruments.
received. Liability is
instruments
remeasured.
granted.

If not reliably If not reliably 13

measurable measurable
(only in rare (only in rare
cases) cases)

DETERMINING THE FAIR VALUE OF EQUITY

INSTRUMENTS GRANTED ( TRANSACTIONS WITH
EMPLOYEES)
 Fair Value
 Measure employee services indirectly, based on fair value
of equity instruments granted
 Fair value of equity instruments measured at market price
for instruments with similar terms and conditions (rarely
available)
 If no market exists, fair value is estimated by applying a
valuation (e.g. option pricing) model
 If fair value is not measurable reliably (only in very rare
cases), then services are measured at the intrinsic value of
the equity instruments
 Date of measurement
 Fair value measured at grant date
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ACCOUNTING FOR EMPLOYEE SERVICES RECEIVED

* If no vesting conditions recognise immediately

credit equity

* If vesting conditions spread over vesting period

credit equity incrementally
apply “modified grant date Method”
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ACCOUNTING FOR EMPLOYEE SERVICES RECEIVED

OVERVIEW OF CONDITIONS
♦ Conditions

− Vesting conditions are service related, i.e. they determine

whether the entity receives the services that entitle the
counterparty to the share-based payment
− Service conditions; with or without …
− Performance conditions
» Market performance conditions or
non-market performance conditions
» Performance conditions by definition always require
a service condition

− Non-vesting conditions are not service related, i.e. they do

not determine whether the entity receives the services that
entitle the counterparty to the share-based payment 16

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ACCOUNTING FOR EMPLOYEE SERVICES RECEIVED (CONTINUED)

OVERVIEW OF CONDITIONS
Vesting
conditions

Service Performance
conditions conditions

Market Non-market
conditions conditions

Service condition Service condition

Requirement to
complete a + +
specified period condition that is condition that is a
of service related to the performance
market price of condition, but not
the equity market price
instrument related
•Employee has to •Share price must
stay employed •Revenue must
increase by 15%
for example , for increase by 10%
•TSR (total
3 three years •Percentage
shareholder
after grant date increase in 17
return) must
market share
increase by 10%

ACCOUNTING FOR EMPLOYEE SERVICES RECEIVED (CONTINUED)

OVERVIEW OF CONDITIONS

Non-vesting
conditions

Conditions Conditions Conditions

that neither the that the that the entity
entity nor the counterparty can choose to
counterparty can choose to meet
can choose to meet
meet

•Inflation must • Holding •Continuation of

not be higher participation the plan by the
than 5% shares over the entity
holding period
•Price of gold
must increase by • Paying monthly
more than 3 % contributions to
a share purchase
plan
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Basically Not related to Services

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EQUITY-SETTLED SHARE-BASED PAYMENTS

WITH NON-EMPLOYEES
 Measured directly at the fair value of goods and services received
 If the fair value of goods and services cannot be estimated reliably,
measure the fair value of equity instrument
 If the fair value of the equity instrument granted cannot be
estimated reliably (only in very rare cases), equity instruments are
measured at their intrinsic value
 Measured at the date the goods or services are obtained
 As opposed to grant date – in case of employees
 Means “daily” if services are rendered
 Simplification method: “regular intervals”
 Expense immediately ( means no vesting conditions) unless
 Goods or services qualify for capitalisation as asset (e.g. inventory);
or
 Vesting conditions exist
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 expense when services are rendered over the vesting period

OTHER SHARE-BASED PAYMENT ISSUES

Share-based
payments

Equity- Cash-settled share- Share-based

settled based payments payments
share-based For example Share with cash
payments Appreciation alternatives
Rights

with with non-

employees employees

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 12th Feb 2018

CASH-SETTLED TRANSACTIONS

 Results in payment of cash (or other assets) to the

counterparty
 Payment is based on value of equity instrument,
e.g., change in share price
 Results in a liability
 Allocate grant date measurement over vesting period
(same approach as equity-settled)
 Remeasure the fair value of the liability at the end of
each reporting period
 Remeasurement recognised in profit or loss
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CASH OR EQUITY SETTLED

AT OPTION OF ENTITY (IND AS 102.41-43)

Cash-settled Equity-settled
transaction if entity
has present obligation
transaction if no
to settle in cash present obligation
to settle in cash 22

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CASH OR EQUITY SETTLED

AT OPTION OF ENTITY – FINAL SETTLEMENT
Upon settlement:

(a) if the entity elects to settle in cash, the cash payment shall be
accounted for as the repurchase of an equity interest, ie as a deduction
from equity, except as noted in (c) below.

(b) if the entity elects to settle by issuing equity instruments, no further

accounting is required (other than a transfer from one component of
equity to another, if necessary), except as noted in (c) below.

(c) if the entity elects the settlement alternative with the higher fair
value, as at the date of settlement, the entity shall recognise an
additional expense for the excess value given
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CASH OR EQUITY SETTLED AT OPTION OF

COUNTER-PARTY - I

Compound Financial
Statement

What is Compound
Financial Statement?

Debt Component Equity Component

Accounted for as for Accounted for as for

cash-settled share- Equity -settled share-
based payments based payments 24

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CASH OR EQUITY SETTLED AT OPTION OF

COUNTER-PARTY - II
1.Transactions with parties other than employees in which the fair
value of the goods or services received is measured directly, the entity
shall measure the equity component of the compound financial
instrument as the difference between the fair value of the goods or
services received and the fair value of the debt component, at the date
when the goods or services are received.

Equity Component = FV of Goods or Services – F V of Debt

Component

2. Other transactions, including transactions with employees, the entity

shall measure the fair value of the compound financial instrument at the
measurement date, taking into account the terms and conditions on
which the rights to cash or equity instruments were granted.

In this case, entity will first measure the F V of debt component , then
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equity.

CASH OR EQUITY SETTLED AT OPTION OF

COUNTER-PARTY -III
At the date of settlement, the entity shall remeasure the liability to its fair
value.

If Settles in Equity Instruments

If the entity issues equity instruments on settlement rather than paying

cash, the liability shall be transferred direct to equity, as the
consideration for the equity instruments issued.
If Settles in Cash

That payment shall be applied to settle the liability in full. Any equity
component previously recognised shall remain within equity.

By electing to receive cash on settlement, the counterparty forfeited the

right to receive equity instruments.
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Transfer from one component of equity to another is permitted.

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RELOAD

 For options with a reload feature, the reload feature

shall not be taken into account when estimating the
fair value of options granted at the measurement
date.

 Reload option is accounted for as a new option grant,

if and when a reload option is subsequently
granted.

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AFTER VESTING DATE

 Having recognised the goods or services received and

a corresponding increase in equity,
 No subsequent adjustment to total equity after vesting date.
 For example, no subsequent reversal of the amount
recognised for services received from an employee if the
vested equity instruments are later forfeited or, in the case of
share options, the options are not exercised

 Recognising transfer within equity is not prohibited-

forfeiture.

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MODIFICATIONS – CANCELLATIONS - SETTLEMENTS

 How to account for the effects of modifications

( Which) are expressed in the context of :-

 share-based payment transactions with employees.

 share-based payment transactions with parties other

than employees, that are measured with reference to
the fair value of the equity instrument granted.

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WHAT IS MODIFICATION ?
 Modification
of the terms and conditions on
which the equity instruments were granted, like
:-
o Re-price the option , increase or decrease the option
price.
 Reduction in option price will increase the fair value of the
options and vice versa.

o Increase / Decrease the no of instruments granted *

o By modifying vesting conditions – reducing or increasing

vesting period.
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MODIFICATION
 When modifications decrease the fair value of the equity
instruments, recognition is based on the original grant date
fair value or it is not otherwise beneficial to employees,
 for example, by increasing the vesting period or by modifying or
adding a performance condition

 i.e. such modifications are ignored

o If the modification reduces the number of equity

instruments granted to an employee, that reduction
shall be accounted for as a cancellation of that
portion of the grant , and NOT as Modification.
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MODIFICATION
 The entity should recognise the effects of
modifications that increase the total fair value of
the share-based payment arrangement or are
otherwise beneficial to the employee.

 When modifications increase the fair value of the

equity instruments, recognition is the sum of:
 The original grant date fair value; and
 The incremental fair value
 The incremental fair value is the difference between the fair
value of the modified equity instruments and the original
equity instrument, both measured at the date of modification 32

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CANCELLATION & SETTLEMENT

 Cancellation or settlement is accounted for as accelerated

vesting

 Recognise immediately the amount that otherwise would have

been recognised over the remainder of the vesting period

 Cancellations by the employer and by the employee

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SHARE BASED PAYMENTS TRANSACTION

AMONG GROUP ENTITIES

 Share-based payment arrangements involving an

entity’s own equity Instruments

 Share-based payment arrangements involving

equity instruments of the parent For example,
employees of a subsidiary are granted rights to equity
instruments of its parent as consideration for the
services provided to the subsidiary.

 Share-based payment arrangements involving cash-

settled payments to employees
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 Transfer of employees between group entities

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SHARE-BASED PAYMENT ARRANGEMENTS

INVOLVING AN ENTITY’S OWN EQUITY INSTRUMENTS

 Such arrangement is account for as equity-

settled.

 This applies regardless of whether the entity

chooses or is required to buy those equity
instruments from another party to satisfy its
obligations to its employees under the share-
based payment arrangement.

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SHARE-BASED PAYMENT ARRANGEMENTS

INVOLVING EQUITY INSTRUMENTS OF THE PARENT

• a parent grants rights to its equity

instruments directly to the employees of its
Situation 1 subsidiary: the parent (not the subsidiary) has
the obligation to provide the employees of
the subsidiary with the equity instruments

• a subsidiary grants rights to equity

Situation 2 instruments of its parent to its employees: the
subsidiary has the obligation to provide its
employees with the equity instruments.

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SITUATION 1 A PARENT GRANTS RIGHTS TO ITS EQUITY

INSTRUMENTS TO THE EMPLOYEES OF ITS SUBSIDIARY

 Both Parent & Subsidiary account shall measure its

obligation in accordance with the requirements applicable
to equity-settled share-based payment transactions.

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SITUATION 2
A SUBSIDIARY GRANTS RIGHTS TO EQUITY INSTRUMENTS
OF ITS PARENT TO ITS EMPLOYEES

 Subsidiary
 Because the subsidiary does not meet either of the
conditions in paragraph 43B,it shall account for the
transaction with its employees as cash-settled.

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SHARE-BASED PAYMENT ARRANGEMENTS INVOLVING

CASH-SETTLED PAYMENTS TO EMPLOYEES
 For example, arrangements in which the parent (not the
entity itself) has an obligation to make the required
cash payments to the employees of the entity:
 (a) the employees of the entity will receive cash
payments that are linked to the price of its equity
instruments.
 (b) the employees of the entity will receive cash
payments that are linked to the price of its parent’s
equity instruments.

 Subsidiary – Equity Settled

 Parent - Cash Settled 39

TRANSFER OF EMPLOYEES BETWEEN

GROUP ENTITIES.

 For Example ,An employee of one subsidiary might

transfer employment to another subsidiary during the
specified vesting period without the employee’s rights to
equity instruments of the parent under the original
share-based payment arrangement being affected.

 If subsidiary has obligation – Cash Settled,

 If not, Equity Settled

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DISCLOSURES

 Ind AS 102 requires extensive disclosure, including:

 – Weighted average fair value of options granted
 – Option pricing model used and inputs to the model
 – Assumptions made in respect of early exercise
 – How expected volatility was measured (and extent to
which based on historical volatility)
 – Details of any market conditions factored into the FV
 – Details of modifications (including incremental FV)
 – Expense recognised in period
 – Liability relating to cash-settled share-based payments
(& intrinsic value of vested options)

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Thank You for Attention

Any Questions ?

CA Yagnesh Desai 98201 33227

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